The Jackson Hole Symposium has drawn a lot of attention because of Jerome Powell's speech in which he re-stated that the Fed will continue to lift interest rates in their fight against inflation. However, some of you may not have seen the inputs of the event given by the Chairman of the Governing Board of the Swiss National Bank (SNB), Thomas J. Jordan. Therefore, it is the intention of this blog to provide you with the highlights of the contribution he made to the event.
Before we jump into the topic, it would be good to highlight that we have done a Podcast titled "The Federal Reserve Vs. The Swiss National Bank" that you can listen to learn more about how the two central banks operate and how they differ.
The Swiss National Bank (SNB)
The Swiss National Bank has two head offices, one in Berne and one in Zurich, and a branch office in Singapore. Moreover, it maintains six representative offices in Swiss cities (in Basel, Geneva, Lausanne, Lugano, Lucerne, and St Gallen). In addition, it has 13 agencies operated by cantonal banks and serving the country's money supply. The SNB conducts the country's monetary policy as an independent central bank. It is obliged by the constitution and by statute to act in accordance with the interests of the country as a whole. Its primary goal is to ensure price stability while taking to account economic developments. The SNB does this by implementing its monetary policy by setting the SNB policy rate. In so doing, it seeks to keep the short-term Swiss franc money market rates close to the SNB policy rate. In order to influence monetary conditions, the SNB also intervenes in the foreign exchange market as necessary. Its actions aim to create an appropriate environment for economic growth.1
Here is a brief summary of Thomas J. Jordan, who is the Chairman of the Board of the SNB, a similar role to that of Fed Chairman Jerome Powell. Thomas J. Jordan studied economics and business studies at the University of Berne, completing his degree in 1989 and his doctorate in 1993. He wrote his post-doctoral thesis (Habilitation) during a three-year post-doctoral research period at the Department of Economics at Harvard University in Cambridge, Massachusetts, USA. He has been serving at the SNB since 1997 and worked in various roles until 2007, when the Federal Council appointed Thomas J. Jordan to the position of Member of the SNB's Governing Board. In 2010, he was appointed Vice Chairman and, in 2012, Chairman of the Governing Board.2
Swiss at the Jackson Hole Symposium
This year's Jackson Hole Symposium seeks to reassess the constraints on the economy following the coronavirus pandemic and Russia's attack on Ukraine, with this panel focusing on the monetary policy outlook in particular. According to SNB Chairman Jordan, "The pandemic and the war in Ukraine have fundamentally changed the constraints on conducting monetary policy."3 The Symposium is a place where the leaders of the central banks can come together and share their views and strategies for tackling issues facing the monetary systems they represent. At the event, Chairman Jordan was on the panel discussing "The Outlook for Policy Post-Pandemic." In his time discussing the topic, he examined the challenges for the Swiss National Bank, taking the Swiss perspective of a small open economy with an important currency.
When discussing the new constraints facing Switzerland and the Swiss franc, two major topics were highlighted by Chairman Jordan when it came to inflation pressures, the pandemic and the war in Ukraine. However, due to the mixed energy strategy of Switzerland, its inflation pressures have not been as severe as in other countries, which has helped to keep inflation lower in the alpine nation, currently at 3.5%.4 SNB' Chairman Jordan noted that Switzerland had already begun to address inflation concerns at the end of 2021 despite the Swiss inflation and SNB's inflation forecast being at a very low level at that time. The outcome of the time in Jackson Hole in relation to inflation is that there is a good possibility that inflation pressure will stay high due to the decarbonization of the economy, the high levels of sovereign debt worldwide, and potential deglobalization.
Regarding monetary policy, it was important for the Swiss to remain focused on price stability. By focusing on price stability, the SNB can be more effective in creating a better economic environment. This focus on price stability has been the case and proven to be of incredible value to Switzerland and the Swiss franc over the past fifteen years as it had to deal with complex outside forces. In straightforward terms, the SNB should remain independent and not be caught up by political pressures, as this will allow them to successfully fulfill their role in achieving price stability.
The contribution of SNB's Chairman Jordan was truly Swiss in nature, concise, efficient, and focused. The role of the SNB is to aid the Swiss economic environment by ensuring the price stability of the economy and the Swiss franc. To deviate from this or add on to the mandate runs the risk of overburdening the SNB or even causing the bank to become political, something the SNB has been and remains firmly against. Chairman Jordan concluded his contribution to the Jackson Hole Symposium by stating, "A narrow mandate allows a central bank to concentrate on the essential task of ensuring price stability, but is also of fundamental importance in safeguarding its independence. Independence seeks to achieve and requires distance from politics. This distance is therefore not something to be given up lightly."3 This strong statement is quite reassuring that the Swiss National Bank will remain focused and committed to price stability in efforts to aid in keeping the Swiss economic environment and Swiss franc strong.
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